CTM81040 - Groups & consortia: groups - entitlement to profits or assets available for distribution: equity holders - subsidiary assets available to

CTA10/S166

The amount of the subsidiary’s assets which are to be treated as available for distribution to equity holders as such (CTM81010 equity holders as such) on a winding-up is an amount equal to:

· any excess of:

· the total amount of the assets of the company over,

· the total amount of its liabilities which are not liabilities to equity holders as such,

as shown on its balance sheet at the end of the relevant accounting period CTM81005 (under CTA10/S166(2)); or

· if there is no such excess or no such balance sheet, £100 (under CTA10/S166(2)(b)).

For the purpose of CTA10/S166(2), you should regard the amount repayable to restricted preference shareholders (CTM81010 restricted preference shares) as a liability which is not a liability to equity holders as such. But, if the restricted preference shareholder is an equity holder under CTA10/S159 - CTM81025, then you do treat the amount repayable as a liability to an equity holder as such.

There is guidance at CTM81055 on the computation of ‘the total amount of the assets’ for the purposes of CTA10/S166 where the subsidiary has made a loan to, or acquired shares in, an equity holder, or any person connected with the equity holder.

Example

Company M’s balance sheet at 31 December 2015 looks like this:

Assets	Amount
Land and buildings	£100,000
Equipment	£50,000
Stock	£25,000
Total	£175,000
Liabilities	-
Loan from Mrs OM	£40,000
Net assets	£135,000
Represented by	-
5% preference shares	£10,000
Ordinary shares	£50,000
Retained profits	£75,000
Total	£135,000

The loan of £40,000 was made by the principal shareholder, Mrs OM. The loan carries interest at 5% and is made on terms that she can convert the loan into ordinary shares at par. This is not, therefore, a ‘normal commercial loan’ for the purpose of CTA10/S162 (CTM81010 ‘normal commercial loan’).

Mr PM, who is Mrs OM’s husband, owns the 10,000 5% preference shares. He paid £10,000 cash for them in 2009. The shares carry rights to a fixed dividend of 5% each year, and to repayment at £1 each in 2021. They have no other rights. These are, therefore restricted preference shares for the purpose of CTA10/S160 (CTM81010 ‘restricted preference shares’).

For the purpose of arriving at the ‘assets available for distribution to equity holders on a winding-up’ in CTA10/S151(4)(b):

· the loan to Mrs OM, which is not a ‘normal commercial loan’, is a liability to an ‘equity holder’ as such, and

· the restricted preference shares owned by Mr PM are not a liability to an ‘equity holder’.

The ‘assets available for distribution to equity holders’ are, therefore, £165,000. This is calculated as follows

Description	Amount
Total assets	£175,000
Total liabilities other than to equity holders	-
5% preference shares	£10,000
Total	£165,000